The ECB meeting will be the main event today and we expect the ECB to ease policy. On Monday, ECB president Mario Draghi told the European parliament that thecurrent rate of inflation (0.8%) was “way below” the ECB’s target and added that “weknow that the longer inflation stays at the current level, the higher will be the risk thatit will not go back to 2% in any reasonable time…in other words, the longer will bethe risk that inflation expectations could be disanchored – and we don’t want that”.This is a clear signal that the ECB will act again and we believe it will start today bystopping the sterilisation of the SMP programme. During Q2 we believe it will alsocut the deposit rate to negative. It could, however, also opt to cut the deposit ratealready today. The MPC meeting in the UK should be rather uneventfulwith no change in policy.
Ahead of the monetary policy announcements, we have German factory orders forJanuary. This is a very volatile indicator and monthly changes should be taken with alarge pinch of salt. German orders have developed in line with the rise seen inGerman business confidence showing continued strength in early 2014.
We do not expect any immediate action from Danmarks Nationalbank (DN) in theevent that the ECB stops the sterilisation of the SMP programme.
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Danske Bank